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Peer-to-peer businesses are shaking up fundamental assumptions about how the economy works.

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Companies need to be thinking about how the changes associated with a sharing economy are going to affect their business models, says Arun Sundararajan, professor at New York University’s Stern School of Business.

In a recent blog in the Washington Post, Arun Sundararajan, professor at New York University’s Stern School of Business, explained why he is so gung-ho about the sharing economy. “One of the reasons why I have found the sharing economy a really appealing topic … is because I think that it creates this opportunity for people to be able to get stuff and experience stuff that they wouldn’t otherwise be able to afford.”

In a new interview, Sundararajan explains the challenges of ensuring the success of this alternative business model. He spoke with Gerald C. (Jerry) Kane, associate professor of information systems at the Carroll School of Management at Boston College and guest editor for MIT Sloan Management Review’s Digital Leadership Initiative.

The sharing economy has attracted a lot of attention in the last few years. Could you give us a quick primer on what it is, and what’s going on in this space today?

Sure. The sharing economy, which is sometimes called the collaborative economy or the on-demand economy, started out as a way for consumers to pay to temporarily access or share products and services rather than buying or owning them.

Today, it’s really a broad and emerging economic system with five characteristics. One is that it’s market-based, meaning that there is some sort of digitally enabled market that enables the exchange of goods and the emergence of new services. Uber and Airbnb are good examples. One is a peer-to-peer marketplace providing transportation, and the other is a marketplace for short-term accommodation.

A second characteristic associated with the sharing economy is that there is an increase in the impact of capital, which means that a range of things, from physical assets to people’s time to people’s money, begin to get used at levels close to their full capacity.

The emergence of crowd-based networks that compete with centralized institutions is another characteristic. These networks thrive when the supply of capital, the supply of assets, and the supply of labor originates from decentralized crowds of individuals rather than from aggregates assembled centrally by corporations or governments.

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About the Author

Gerald C. (Jerry) Kane is an associate professor of information systems at the Carroll School of Management at Boston College and the MIT Sloan Management Review guest editor for the Digital Business Initiative. He can be reached at gerald.kane@bc.edu and on Twitter at @profkane.